Housing affordability improving in most parts of the country as prices fall faster than interest rates are rising, our latest Home Loan Affordability Reports show

By Greg Ninness

Housing became more affordable for first home buyers in most parts of the country last month, as falling prices more than offset the extra costs of rising mortgage interest rates, according to interest.co.nz's latest Home Loan Affordability Reports.

The reports show that the fall in the Real Estate Institute of NZ's lower quartile selling prices, which became evident in many parts of the country in December, intensified and spread to most parts of the country in January, with the falls in some places being significant.

The REINZ's lower quartile price (the price point that 25% of sales would be below and 75% would be above) declined in nine regions (Northland, Auckland, Waikato/Bay of Plenty, Taranaki, Wellington, Canterbury, Central Otago/Lakes, Otago and Southland in January compared to December, and continued to rise in only three, Hawke's Bay, Manawatu/Whanganui and Nelson/Marlborough.

In Auckland the lower quartile price peaked at $717,200 in November then dropped to $706,400 in December and $675,900 in January.

That more than offset the effect that rising interest rates would have had on mortgage payments for a lower-quartile priced Auckland home, with the average of the two year fixed rates offered by the major banks rising from 4.41% in June to 4.81% in January.

However, because prices in Auckland remain so high, the fall in prices that has occurred over the last two months would only have reduced the mortgage payments on a lower quartile-priced home in the region by just over $23 a week, from $753.53 a week in November to $730.15 a week in January.

Household budgets extremely tight

While the savings the price falls have provided are not huge, the amount of debt first home buyers in Auckland would need to take on to get into a home of their own remains so large that their household budgets would likely be extremely tight and every little bit of extra cash would help.  

The reports show that lower quartile prices have also fallen in areas that have been regarded as property hot spots, such as Hamilton where it dropped from its peak of $428,500 in December to $404,250 in January, and in Tauranga where it has fallen back for two months in a row from its peak of $485,000 in November to $451,250 in January.

Even in the Wellington region, which has had one of the hottest real estate markets in the country over the last few months, the lower quartile price dropped from its peak of $423,900 in December to $381,900 in January.

In Christchurch the lower quartile price has fallen for two months in a row from its peak of $411,300 in November to $374,400 in January (click on the links at left for the individual reports on specific cities and regions.)

While the decline in prices and corresponding reductions in mortgage payments will be welcome news for most aspiring first home buyers they are only a small step in the right direction. First home buyers who take on large amounts of debt to get into their first home will remain at risk of encountering serious financial difficulties from rising mortgage interest rates unless the recent price falls continue.

That is especially true for first home buyers in Auckland where the mortgage payments to buy a lower quartile-priced home are likely to be double what they would be to buy a lower quartile-priced home in most other parts of the country.

The Home Loan Affordability Reports track how much of a typical first home buying couple's weekly income in each region would be sucked up by the mortgage payments on a lower quartile-priced home in the same region.

In Auckland the mortgage payments would take up 45.67% of their weekly take home pay, compared to 21.26% in Waikato/Bay of Plenty, 22.84% in Wellington and 20.82% in Canterbury.

So although house prices in Auckland have edged back from their highs over the last couple of months, housing in the region remains seriously unaffordable for aspiring first home buyers on average incomes.